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tv   Bloomberg West  Bloomberg  June 30, 2014 11:00pm-12:01am EDT

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>> live from pier 3 in san francisco, welcome to "bloomberg west," where we cover the global and media companies that are reshaping our world. i am emily chang. salesforce has named a new ceo. hawkins helped manage the transition to selling more subscription software. twitter is expanding its suite of advertising reaching a deal to buy tapcommerce. it helps to convince customers
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to reopen apps they've downloaded. and taking in $300 million globally in its opening weekend. in the u.s. it took over $100 million. the biggest mastech me the debut of the year. it pulled enough in china which would make it the biggest opening ever for a foreign movie in china. google will have to face a class-action lawsuit. the supreme court refused to consider the appeal of allowing the privacy lawsuits go forward. google has said it was a mistake but insists the actions did not
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violate federal wiretapping law. our editor-at-large cory johnson is with me in the studio and joining me is our guest. what is the liability here, how bad do you think this is? >> it is a serious decision. the supreme court left in place the decision which found that the company had violated the federal wiretap act with its street view vehicles that were supposed to be taking pictures of houses were also capturing wi-fi communication. when people learned about that they charge the company was violating federal wiretap law. >> what was google doing here, some of the things sound awfully ominous. images and documents all unencrypted. >> in doing it as they would have cars patrolling the streets not just of the u.s. but of the
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world. they have these street view cars taking pictures of everything around them am everyone walking in the street in everyone's homes. they were also secretly gathering wi-fi hotspots and not just locations but the actual ip addresses of some of the devices. they wanted to know what computer you're using, your home router's ip address and where it looked on the map. and in some cases they were able to determine usernames of the actual devices and who was running them. courts on both sides of the atlantic have declared this act to be illegal. >> face it was a mistake. does it mean it was an accident? >> they did not say it was an accident. this was a very planful thing. there have been some instances where google has been involved in gathering information and sharing that information with the world. think of the original mission statement.
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every google employee and person has been on a mission. it was to gather and organize the world of information and make it universally successful. some of that does not want to be gathered. if their personal mission statement is to go out and do this thing they're going to run into these problems and they might have to address that. >> what are the consequences here? a lower court will hear this class-action suit. what are the consequences, what punishment could google face? could be quite substantial. the action that was brought under the federal wiretap act was a class-action lawsuit which means that many people have been brought together to bring this claim. the supreme court has left the legal basis for the claim which means that google could be looking at substantial monetary fines. it is not likely they will go to trial in a case like this.
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it would be easy for the plaintiffs to show that the wiretapping activity that was alleged had in fact occurred and with the legal basis for the claim well in place they would almost certainly prevail in child. which means you will likely see a settlement. the parties will sit down and try to figure out what a reasonable amount is to dispose of the various claims now pending against the company. >> when you look at the acquisitions that google has done, acquiring satellites that can send signals, find people, drones, military robots, audiovisual surveillance through drop him. what does this mean for other google projects and does this change, this result make the acquisitions perhaps less valuable or make them -- unable to use them in ways that they had been inclined.
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>> there are some boundary lines out there for google that they really cannot cross. a lot of the data collection they are able to do as long as it is internal but when they are violating the wiretap act by collective information through wire transmission then clearly they are creating a business model that is going to subject them to liability. i think you will cause the company to pull back a little bit and look more closely at what limitations travesty laws do impose. from the user's and does perspective that is not necessarily a bad thing. presumably those laws are protecting important interests. we want to use routers without worrying that others will be intercepting our private to medications. companies should be free to innovate so we should find a way to have companies innovate while respecting these important
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privacy safeguards. >> we will follow this lawsuit as it heads to a lower court. do not miss my interview with reid hoffman. we discussed everything from his new book to his upbringing in berkeley. he talks about the legendary paypal mafia. >> macroeconomic, financial, bold model, the intersection of interesting is this models or business technology, things like big data. >> more of my interview with reid hoffman coming up later on the first installment of studio 1.0. ♪
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>> i am emily chang and this is "bloomberg west." aereo is suspending operations after the ruling by the supreme court. they are mapping out their next step. our guest has weighed these risks and cory johnson is with us.
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how do you make these choices when it comes to a company like aereo or uber or airbnb running into these issues? >> in the case of aereo they must have chosen to go after the cable providers thinking there was a shot. in the case of commercial drones we have service called the red cap. you basically figure out what is the risk and hope that the regulatory one will be addressed it one point in your favor. >> is the notion that there are different types of -- certain industries, those are federal.
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things like finance, health care, communications that is one sort of federal and with municipalities they are dealing with a lot of regulations but they can take them one at a time. >> that is a way to split the challenge. faa are changing and you hope that progress will actually win. >> hope is not a plan. >> there's a lot of luck making a company a success. in the case of regulation you look at the risk and talk to the council and say this is what has happened. this is the way the agencies are looking at that sort of progress and hope for the best. >> we have been talking about valuations. do you think any of
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these regulatory issues could truly slow them down and become their fatal flaw? excited not think so. in the case of those companies they have reached a scale where they can go to the local government and they can go to the federal institutions and make their case. in the case of aereo, they were slaughtered by the cable industry. >> you passed on airbnb. is there a reason? >> they were called air bed and breakfast. to go to a conference somewhere in the u.s. and to get in in an air bed and stay with someone to have a cheaper way to have accommodation. >> you could feel the
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the funk in the valuation. >> what is that feeling like when you know that you past on something you could have made some money on? >> that is our job. that is to see everything that is interestingb and make a decision. hopefully we will make the right decision. and in the case of linkedin, it is like -- airbnb and uber are profits on paper. linkedin is real. you can look at those in go well. >> if you just raise more money and we have been talking about valuations and how money rushing into the market -- when you're seeing us talking about rushing into market you have raised a bunch of money or commitments to
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money. what was the fundraising process like, how is the rest of the world investors seeing early-stage stage investing in silicon valley now? >> despite the market when you have 135 funds that are out there investing, when i started there was one. and so it has a different landscape. people look at the portfolio, this by passing on them. we have made a bit of progress and we have a lot of winners in what we have invested which will make a lot of money for investors. it was never easy to get money from people but it is much easier. >> do you think it will not end well, all the capital that is chasing tales now, all the prices going up?
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>> you have a lot of capital chasing deals. there is a lot more discipline. prices have gone up in crazy ways. there's a finite amount of capital and that is where the regulation is happening. even though some companies get very high valuations, they have not moved that much. >> after raising his fourth fund. thanks for joining us. they spoke is under fire after conducting a psychological experiment on its users. that is next. ♪
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>> welcome back. sunday marked the seventh anniversary of the first iphone being released and how far we have come since 2007. there have been eight models and sales past the $500 million mark create apple is rolling out a new ad called parenthood. looking at all the ways that iphones help parents. iphone is expected to release the next iphone in september. google has gone to cuba. they traveled to havana over the weekend for a push for a free and open internet. he blogged about his trip calling the internet of cuba trapped in the 1990 plus.
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turning now to facebook. they conducted a social psychology experiment. they altered and operate them on 700,000 of its accounts to determine whether they could alter their emotional state by omitting positive or negative posts in each newsfeed. what about the legal and ethical issues of this study? a business attorney is here with us. how does this strike you? google is running experiments at any one time. is this different? >> there is substantive comparative advertising. how can we manipulate users and data to get what we need. what is distasteful is the
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covert nature of it. it seems like an experiment that is on such a grand scale and it was not disclosed. it does not smell good or taste good but there is no real overt legal problems. the terms of use allow for them. >> the notion that facebook is boasting of its ability to be a mood altering drug even if users sign up for it is disturbing. >> one of the things we note is that they tend to shift their policies and their practices based on the user backlash. this is a 2012 study. they have done a poor job of managing the publication and the results of that study. if they see that users do not like being manipulated or their newsfeed is not authentic, it is being screened to disclose certain posts or others, you
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might see a departure from facebook to sites like instagram. another new or novel media platform. >> would be better if they did this and did not tell us? the terms of use permit this but can't they just as easily run these kinds of experiments and do this kind of research for an internal benefit? >> absolutely. for every one of the studies there are a million others that we simply do not know about. if the studies and their ramifications are offensive enough one would the and amazon pricing structure. amazon offer different prices for the same goods based on demographics and consumers found out and there was a backlash and amazon. not to do that again. >> users saying negative stuff without anymore interaction with
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other people from themselves posting more negative stuff. now i know i'll was in a bad mood for six months. >> there are books and psychological studies independent of facebook's own that demonstrates the impact that social media has on moods and their daily interaction. some people have facebook addiction and other people feel the need to get affirmation about their own lives. social media does permeate a lot of what we do depending on what the giant wants to do with that data. the ramifications can be quite profound and interesting. we have to be vigilant with what the site doesn't read the terms of use. if there are major changes we do not like we might have to think about leaving the network and finding another one. >> thanks for sharing your thoughts with us. my interview with the cofounder of linkedin.
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>> the way think about it is how do you have a life that you are proud about having lived my that you think that what you did in the world was worth it, that it was worth hard work, sweat, blood, tears. these are challenging, these are not easy things to do. >> more of my interview with reid hoffman next. >> let's take a look at where stocks are trading. the s&p 500 did flirt with the record level.
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we did have better than estimated pending home sales data but worse than estimated data on manufacturing in the u.s. ♪
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>> reid hoffman is the cofounder and executive chairman of linkedin. and an investor in some of the most successful companies of all time including a spud. the man with one of the most impressive resumes in silicon valley was not always on track to be an entrepreneur. he pursued a career in academia. he took his first job out of school at apple and joined the legendary paypal mafia. now he sits on seven boards. he is the author of the start of review and the new book to my the alliance. our guest is reid hoffman.
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thank you for joining us. you have no shortage of jobs to do. why did you write your book? >> in many circumstances companies -- the notion is the modern career is changing where there is options for shifting companies for how you evolve, even career tracks are changing. how do you get that investment and that relationship between the company, the employer, and the employee and the short answer is alliance. it is based on tours of duty for you sign up for a project that is three or five years long and that transforms your career and transforms the company. >> you say people should be honest from the start. how honest should they be? >> something i learned from one of our executives. when he is interviewing people he asked them what job they want after linkedin. that is part of his interview. >> what do you want to do next?
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>> that is the level of transparency. you want your stint here to be transformative to what your career is. >> what if you hear something you do not like? >> you ask why. if you learn something, that may mean that our alliance over this tour of duty may not work. >> is comparison to the military, the tour of duty. do people feel that way about their companies, as patriotic as a soldier is to his company? >> it is not daily employment and it is an investment and it should be transformative. that's a bold term would be a way to think about it. >> what other companies are doing this well? google.when i talked to eric schmidt. these are three to five year stints for the person proves themselves and then goes on to do something else.
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ebay focuses on how do we bring the relationships of all the folks who have graduated from ebay and paypal together and have the external network. even things like ge in terms of what they used to do and still do. how do you groom all kinds of stars to be an executive at this huge industrial conglomerate? >> what does silicon valley get that other industries do not get? >> silicon valley understands we do not hole up in our labs and invent something and then to doubt, there it is. that being present and active in what is going on is central to innovation. people frequently hold up steve jobs. he was talking to people constantly. i am interested in learning
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about this and what these google folks are doing. silicon valley is a combination of intense cooperation and competition. >> on the one hand linkedin makes it easier to find good opportunities and for companies to lose good people. >> when you have a more open and transparent ecosystem that means that the quality opportunities, the quality companies, the high culture companies will benefit. the talent will flow to that. overall, it it is massive benefit for the individual and the companies that have interesting opportunities and that is a good thing. >> you have a statement of alliance that people can't use as a guide. in the end is in a just a promise and a promise can be broken? >> promises can be broken and sometimes like a friendship ends, it happens. if you lived your whole life
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like friendships may answer will not have friends, that would be terrible. >> m&a companies have a founding myth that boiled down into legend. what is the myth of reid hoffman and what is the reality? >> who can't tell the difference? sort of a manifest destiny march toward entrepreneurship and technology. the reality is an instinct for how do we come together as people and what are the ways to help that. and software, entrepreneurship. as ways is discovering the path. >> let's take a break. we will be right back. ♪
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>> you grew up in berkeley. what did your parents do? >> both parents are lawyers. that led to because the legal profession is the one that people most often leave when you look at the actuarial charts.
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people asked me what i wanted to be when i grew up and the answer was not a lawyer. i kind of got the independence bug a little early. i was going to a school that was on the berkeley open border. a friend of mine said i am going to a school called the putney school. i could go and the independent and explore my own life so i applied for and got into the putney school without either of my parents knowing. it was the independent streak which i encountered a little early. >> did you fit into one of the boxes anywhere? >> i was a pretty strange individualist. i usually would have one or two friends. i had a friend or two out of the jocks and a friend or two out of the artists and a friend or two
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and it was all very individual. i did have much younger, i was part of a fantasy role-playing group. dungeons & dragons. and the way i got in was my dad when i was nine hired a babysitter who introduced me to dungeons & dragons. i was like to mock creating new worlds, an interactive novel. >> stanford and majored in symbolic systems. >> it is a unique major to stanford. the simple explanation is artificial intelligence. it is a step deeper which is part of what is transforming the world is these notions whether they are computer programs or mathematics and logic. models of how we think and psychology. i was the eighth or ninth
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person. >> while you were at stanford you met peter. >> i was told he was this really right wing person and he was told this is this really left-wing person. we grabbed coffee and argued for eight hours. and then we were like, that is fun. >> he went on to oxford. >> i will be an academic. if i am an academic i can write about both these questions. what i realized is the course of becoming an academic professor was to be a very narrow scholar. he wanted to be an expert on this thing that only 10 or 20 people knew about. how do you help millions of
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people? in six months at oxford i knew that i was not going to be an academic. i was going to come back here. >> that is when you decided to be an entrepreneur. >> that is when i started to work on software. making of myself as an entrepreneur that came later. >> you took your first job that apple. in the middle of the near death spiral. did you meet steve jobs? >> i was at apple, we did not know what we were doing. we have no good plan to adopt to what is going on in the future. i loved apple products and the macintosh. i learned to program on the apple. >> you started a social network for social networks. it was called social net. >> it had some of the right ideas. it had the idea of having a profile and the idea of discoverability.
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the idea of having some social controls on how you would meet strangers. it did not have the fundamental network idea. it did not have the real identity idea. >> you went on to the paypal mafia. how did that happen? >> i called peter and he said we will sell paypal because we do not have a business model. it would be useful. could you help us come organize the company and help sell it? i know all you guys and i would be happy to step in. we ended up taking it public and selling it to ebay. what was supposed to be a six month tour of duty turned into a three year tour of duty. >> when did it start being called the mafia? >> i do not really know. it might have been with the fortune article. i am always a little hesitant about the term.
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mafia implies dark room, extortion, these kinds of things. it is clever and gets repeated and implies a dense network. i think it started six to 12 months after the ebay acquisition. >> linkedin, tesla, emr, and spacex. all founded i members of the paypal mafia. what did you have in common? >> paypal collected a bunch of people who are young and intense and entrepreneurial. and then all of a sudden a bunch of these folks are like ok. what do i do next? élan goes and does tesla and spacex and jeremy and rest you yelp. i do linkedin. and yet because we had this
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intense experience together we have a tight network. >> who do you call for what? >> that is bold models, i called peter. at the intersection of is this models or business technology, for a willingness to think super big with risk, elon musk. >> what what do they call you for? >> last. >> i heard you are quite funny. >> occasionally. a view of the valley. i am thinking about x, who are the right people to talk about x? >> looking back, was that the right decision? some other members of the paypal
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mafia think they are better apart. >> it was the right decision at the time and we made it collaboratively. part of the reason was to get to the right level of the payments transaction system. it required much closer connection. you can say is it better inside or outside and one can make good arguments both ways. the argument with is there is still a lot of density. the argument against it is maybe paypal should be with the bank. the evolution is to head there in some directions and that is possible with the right management team. >> time for another quick rate. we will be right back. ♪
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>> you could have retired a few times over. some other members of the paypal mafia bought ferraris. you could have leaned back. i was thinking of buying an audi, then i got pitched by a friend on a startup. i would rather spend my money investing on companies changing the world. i was thinking about traveling around the world for year and what i realized was in 2002 silicon valley said the internet was over. they're going to -- there are some of the companies that are going to be created.
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i came back and said what is my best idea and linkedin is still a very valid idea. i should start that and start investing in companies like facebook and a number of others. let's just go all in on this next generation of internet. >> the early years were hard. tell me about that. >> i do not know how many of our viewers will remember but friendster was big. i can't tell you the number of times i have had conversations with people who said it would not work and i said i think it will. >> when did you come close to giving up? never? you made some hard decisions along the way including stepping down as ceo and becoming executive chair. >> the question was not it was a difficult thing for stepping
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down. what gives us the best possible chance to realize something and part of what i have realized is i am passionate about scale and impact. i am passionate about entrepreneurship and innovation but i am not passionate about running an organization. i do not wake up going how do i run my executive staff better? i know it is important but it is not the problem i wake up taking about. as a came together with jeff and he said i can help you running the stuff that you feel challenged about. but jeff can actually do this job. >> we get along very well. jeff knows that when it comes down to things like building organizational culture or thinking about how do you make
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an executive staff work really well together and how do you identify a plus talent so we partner on these things together and solve these problems together. >> how do you split your time, is it 50-50 or can you break it down? >> i generally work seven days a week. >> seven days a week. you have had some much already. why do you do this? >> how do you have a life that you are proud of having lived, that you think that what you did in the world was worth it? >> you think about steve jobs at apple and mark zuckerberg at facebook. is there a magic of founder brings that would be lost if you were not here? >> every founder is useful because of that vision, that commitment.
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the willingness to take bold risks. >> you have a really unique investing lots of the. the best companies are the companies you do not agree on. >> most people think that the way the venture partnership works is -- if everyone thinks that is the good deal that is where it happens. the really bold deal that transform industry are the ones that initially seem a little crazy, a little out there. like linkedin in its early days. >> didn't you disagree on facebook and airbnb? >> yes. our partner said this will be the death of greylock. a variety of partner said people will rent out their rooms and is not going to be a little weird? he said i would not do the deals but you can. >> you have been called the
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start up whisperer. what does that involve? >> i am not quite sure. people who use that term by being an entrepreneur myself, by being a participant in a lot of the early stage companies, it is not that i know everything but i know some things are useful. >> we live in an age of apple, google, facebook, and amazon. do you worry that anyone of them could become too powerful? >> yes although not necessarily specifically each one of them but more as a general system. when you have an aggregation of platforms you have to worry about leaving room for entrepreneurs and innovation. i worry about that on a general basis. i have talked to all of this, the ceo of those companies and they are all like, we are trying to build great products.
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>> richard branson has a private island. what do you do with all the money that you have made? >> most of it is still in linkedin stock because i am building the world to linkedin. i serve on a number of nonprofit boards. i tried to finance projects that i think are interesting. >> are we going to see you start something else, another company? >> probably not. i work pretty closely. i would say it is unlikely. you will see me partner with a bunch of great young entrepreneurs and figure out how to build something big. >> it has been a pleasure to have you on the show. ♪
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